Global bank supervisors endorse sound practice standards for liquidity risk
The Basel Committee’s Principles for Sound Liquidity Risk Management and Supervision was endorsed by central bankers at an international conference
BRUSSELS – Bank supervisors from central banks and supervisory agencies have endorsed the Basel Committee's Principles for Sound Liquidity Risk Management and Supervision. Supervisors were meeting at the International Conference of Banking Supervisors hosted by the Belgian Banking, Finance and Insurance Commission and the National Bank of Belgium on September 24–25, 2008 in Brussels.
The principles underscore the importance of establishing a robust liquidity risk management framework that is well integrated into the bank-wide risk management process. Key elements of a bank's governance of its liquidity risk management are also emphasised. The document also sets out the principles to strengthen the measurement and management of their liquidity risk. Among other things, a bank should conduct regular stress tests for a variety of short-term and protracted institution-specific and market-wide stress scenarios and use the outcomes to develop robust and operational contingency funding plans; ensure the alignment of risk-taking incentives of individual business lines with the liquidity risk exposures the activities create; actively manage its intra-day liquidity positions and risks to meet payment and settlement obligations; and maintain a cushion of unencumbered, high-quality liquid assets as insurance against a range of stress scenarios.
Nout Wellink, chairman of the Basel Committee on Banking Supervision and president of the Netherlands Bank, stated that: “The new liquidity principles should help promote better risk management in this key area. This will only be achieved, however, if there is robust and timely implementation by banks and supervisors. The Committee will co-ordinate rigorous follow-up by supervisors to ensure banks adhere to these fundamental principles."
The principles also discuss the key role of regular public disclosure that enables market participants to make an informed judgement about the soundness of a bank's liquidity risk management framework and liquidity position. The role of supervisors is also highlighted, including the responsibility to intervene to require effective and timely remedial action by a bank to address liquidity risk management deficiencies. The principles also stress the need for regular communication with other supervisors and public authorities, both within and across national borders.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
FCMs warn of regulatory gaps in crypto clearing
CFTC request for comment uncovers concerns over customer protection and unchecked advertising
UK clearing houses face tougher capital regime than EU peers
Ice resists BoE plan to move second skin in the game higher up capital stack, but members approve
ECB seeks capital clarity on Spire repacks
Dealers split between counterparty credit risk and market risk frameworks for repack RWAs
FSB chief defends global non-bank regulation drive
Schindler slams ‘misconception’ that regulators intend to impose standardised bank-like rules
Fed fractures post-SVB consensus on emergency liquidity
New supervisory principles support FHLB funding over discount window preparedness
Why UPIs could spell goodbye for OTC-Isins
Critics warn UK will miss opportunity to simplify transaction reporting if it spurns UPI
EC’s closing auction plan faces cool reception from markets
Participants say proposal for multiple EU equity closing auctions would split price formation
Fed pivots to material risk – but what is it, exactly?
Top US bank regulator will prioritise risks that matter most, but they could prove hard to pinpoint